Post
Topic
Board Economics
Re: What is the nature of the value of Bitcoin?
by
dezoel
on 20/08/2021, 21:40:19 UTC
While Wind_Fury is right that Bitcoin is not "a battery" (i.e. for the Bitcoin price it isn't relevant how many energy was put into mining in a certain point of time), I think what you wrote here is actually a pretty good explanation for the base mechanism which gives value to BTC, although it obviously only covers a part of the whole "value proposition".

Basically Bitcoin is "a medium I can trust to transfer value", because of the security provided by PoW, and because of the scarcity which ensures that my value isn't diluted. Like you wrote, there is consensus among the users regarding this part of the value proposition.

But then you can add more "items" which make up the whole value proposition. For example, there are some advantages which it has compared to the "fiat system", and any of them is "adding value" for some user groups:

1) No national barriers. It is a perfect medium for international transfers.
2) Transparency and non-reversibility of payments (important for businesses like merchants).
3) It gives new opportunities to make profit. This is not only a part of the "value proposition" for the hundreds of thousands or millions of traders or holders, but also companies who build services upon it. This item is different from the base value proposition ("it has value because the value is preserved due to security and scarcity"), because in this case, people expect to benefit from it, not only to "store" value.
4) Accessibility (you don't need a bank account for it, not even an address)

In my Spanish post, I related these factors to the network effect, which increases or decreases the base value, according to its strength (this is why some altcoins have small values, even if they use exactly the same code than Bitcoin). This is approximately what you mean with "consensus", I think.
Wow this is really a great way to describe bitcoins value plus it is a well thought out and written explanation for it that can be translated to any language and shared over the world to answer this question which has been asked a million times by now probably.

I have to say I would add one more thing to there as well; the idea of inflation. Inflation in the fiat world is something we came to grew used to it, for some reason we need to have "growth" and that results with inflation, we can't have the same finite amount of money because in that case wealthy people usually make more and more money meaning eventually they would own all of it, and we would have none of it, so they need to create more fiat in order to make sure that we keep getting some and wealthy people keep growing.

I would say let the wealthy people not grow and allow us to catch up, but that isn't going to happen anytime soon. In bitcoin we have that chance, we can keep buying more and more, sometimes at lower price and sometimes at higher price but we get to buy more and more of it, and rich people will not be given any free bitcoins ever, and that means store of value part of bitcoin gives us a chance to get richer over period of time while not dropping the value of what we are holding.